World Food Prices Hit New Record – Welcome to the “Crack-Up-Boom”
For those that aren’t familiar with the phrase “Crack-Up-Boom” it was fist coined by the free-market Austrian Economist Ludwig Von Mises in 1949 in his economic treatise “Human Action”. The entire book can be read for free here.
From Human Action:
“’This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.’
“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
“It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”
Very prescient words. Essentially Mises is saying that when central banks start their deliberate debasement of the currency the people will not be aware of it at first. Then reality strikes and there is a mad dash to grab anything that is real and tangible, whether the goods are particularly needed or not.
Mises then warns that “It will happen again whenever the same conditions appear”. Those conditions are wanton money printing – sound familiar?
Today we get news from the UN’s Food and Agricultural Organisation that world food prices rose for seventh consecutive month. Moving 3.4% in January 2011 alone. The breakdown is as follows:
- Cereals – up 3% in January 2011
- Oils/Fats – up 5.6% in January 2011
- Dairy – up 6.2% in January 2011
- Sugar – up 5.4% in January 2011
- Meat – held steady in January 2011
“Freedom is just another word for nothing left to lose” – Janis Joplin Me Bobby Mc Gee
According to the 2010 edition of the “Family Spending” report issued by the ONS the average household in the UK spends about 11.5% of their total expenditure on food. This rises to 16% for those on the lowest incomes. These sorts of figures mean that the UK can ‘put up’ with higher food prices for a while, and that there is no danger of people going hungry in the immediate future. It is when people don’t have full bellies that the often take to the streets.
But just take a look at the numbers elsewhere in the world. With Cairo burning and the west flip-flopping on what to do, it’s worth remembering that 40% of the people live on just $2 a day. With such tiny incomes even small rises in the price of food can mean you go hungry. And when people are hungry with nothing left to lose, what else is there left to do but to take to the streets?
What other countries have a high percent of the population living on less than 2% per day?
Algeria:
Next door to Tunisia, who had their revolution last month and separated by one country to the on-going revolution in Egypt. Some 24% of the population live on $2 per day. A national day of protest is set for February 12th. Watch this space.
Yemen:
Yemen is already starting to see some protests, and the Yemeni leaders have already promised to not stand at the next elections in a desperate attempt to head off any trouble. With some 47% of the population on less than $2 per day, is it any wonder?
Pakistan:
Some 60% of the population live on less that $2 per day. An already fractured and unstable country – rising food prices across the board might be the nudge it needs to “do an Egypt”
China:
This would be the ‘big one’ if trouble started to erupt there. It has some 36% of the population on $2 a day or less. China is more susceptible to rises in the price of rice, being the main staple consumed there. How has rice been fairing so far this year? After dropping by 4% last year, it’s knocking on the door of making at 52 week high, and has been close to being “limit-up” in the past 2 trading sessions.
Whilst the crack-up-boom in food is, well, booming, it isn’t just food that is getting the full Ben Bernake treatment. Brent Crude is trading at $102 today. Copper is making daily all time highs and Cotton is simply going off the charts.
Back at the start of the year we speculated in “2011 – Now the Pain” that these cotton prices would kill company margins:
“These price increases are going to hammer corporate margins, especially those who’s business model already operate on razor thin margins (Primark to go out of business in 2011 anyone?)”
With cotton prices making a bid to go inter-stella Primark’s numbers later in the year should make for very interesting reading. With better PMI numbers in the UK in the past couple of weeks, it wont be too long before the reality of these commodity prices bring the economic recovery cheerleaders back to earth with a bump.
Mises’ warning that “then the masses wake” are starting to look like a very sombre warning form history. Welcome to the “Crack-up-Boom”.
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Link to this article: : http://www.goldmadesimplenews.com/markets/world-food-prices-hit-new-record-welcome-to-the-%e2%80%9ccrack-up-boom%e2%80%9d-2240/
Posted by Thomas Paterson on Feb 3 2011. Filed under Analysis, Markets.
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